dubai bashir ali mohammad

8/6/2019 Dubai Bashir Ali Mohammad

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Presentation by

Bashir A. Mohammad

ITMF -President

Consequences

of

soaring

raw

material

prices

for

thetextileindustryinPakistanandtheworld

ICA Dubai 2011March 15/16, 2011

Dubai

17.03.2011 1


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1) Entire cotton textile value chain is under pressure

2) Input costs rise across the board and are difficult to

pass on

3) Many textile mills lack sufficient working capital and/orcotton

17.03.2011 2

Soaring Cotton Prices


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1) Textile mills further downstream (i.e. finishers, apparelmanufacturers are under higher pressure than furtherupstream (i.e. spinners)

2) Bigger textile mills are often stronger to absorb cost

increases and/or to pass them on

17.03.2011 3

Ad 1) Textile Value Chain UnderPressure


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1) Not only cotton prices are soaring (approx. +150%since Jan. 2010) but also labor costs (i.e. China up to+30%), energy costs (i.e. oil approx. + 50%),

environmental costs (i.e. legislation), etc.

2) Integrated textile mills are often more flexible to absorbcost increases

17.03.2011 4

Ad 2) Passing on of Input Costs


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1) Increasing input costs require higher working capitalthat is not always available

2) Textile mills with low cotton stocks and/or no access tocotton are in trouble

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Ad 3) Lack of Working Capitaland/or Cotton


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1) Buyer-Driven Industry dominated by retailers, brandsor sourcing companies

2) Buyers demand more and more full-package servicefrom their suppliers

17.03.2011 6

Textile and Clothing Industry


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Until 2010

1) In the past 10-20 years retailers were used to fallingprices for their textiles

2) The bargaining power was considerable andnegotiations were focused more on prices than on quality

17.03.2011 7

New Paradigm in the Global TextileIndustry


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Since 2010

1) Retailers realize that their suppliers will not provide

them with goods for their shelves unless they will alsomake a profit

2) Many manufacturers, especially in China, India andBrazil are better off supplying the local markets instead ofthe international markets

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Since 2010

3) Bigger retailers are trying to reduce the number ofsuppliers

4) Smaller retailers have a strong interest in strengthening

their partnership with their suppliers if they want reliablepartners

17.03.2011 9



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1) The textile machinery industry certainly felt the GlobalFinancial and Economic Crisis in 2008 and 2009 but

recovered well in 2010

2) A look at ITMFs International Textile MachineryShipment Statistics shows the extent to which

investments were reduced during the crisis and how theypicked up again afterwards

17.03.2011 10

How is the Textile MachineryIndustry Affected?


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Shipped Short-staple Spindles

2000 - 2010millionspindles

17.03.2011 Source: ITMF Legend: E = Estimates 11


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Shipped Open-end Rotors

2000 - 20101,000 rotors



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Shipped Texturing Spindles

2000 - 20101,000 spindles



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Shipped Shuttle-less Looms

2000 - 2010Looms



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Shipped Circular Knitting

Machines 2000 - 2010Units



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Shipped electr. Flat Knitting

Machines 2000 - 2010Units



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A steady recovery can be observed on aglobal scale since February 2009

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What Does the Recovery Look Like?


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Imports and ExportsKey Countries Textile Machinery

2007 - 2010

17.03.2011 Source: Wendler Marktinformationen 18


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Imports and Exports China

Textile Machinery 2007 - 2010



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Imports and Exports India




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Imports and Exports Italy




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Imports and Exports Turkey




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Imports and Exports Brazil




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Imports and Exports USA




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1) The spinning machinery industry is not feeling anyconsequences from soaring cotton prices. The orderbooks are full and delivery time can be anywhere between6 months and 2 years

2) Further downstream the impact of soaring cotton

prices on textile machinery is stronger as passing oninputs costs to the retail industry is more difficult

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Soaring Cotton Prices andTextile Machinery Shipments


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1) Recovery of the global economy in general and thecontinuous high growth rates in China, India, Brazil,Turkey, Indonesia, etc. in particular

2) Per capita consumption is increasing strongly,especially in emerging countries

3) Upgrading of the machinery park in order to be moreefficient and to reduce costs per unit

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Reasons for Investments


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Cotton Fiber Demand

2000 20101,000 tons

17.03.2011 Source: PCI Fibres Demand Report 2004/2009 27

China +112%

India +45%


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Synthetic Fiber Demand

2000 20101,000 tons


China +179%

India +88%


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Total Fiber Demand

2000 20101,000 tons


China +151%

India +61%


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Population

2000 2010million

17.03.2011 Source: U.S. Census Bureau 30

China +5.3%

India +16.6%


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Fiber Demand per Capita

2000 2010kg

17.03.2011 Source: U.S. Census Bureau, PCI Fibres Demand Report 2004/2009 31

China +140%

India +35%


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This quarterly report on cotton yarn and fabric productionindicates that yarn production was especially increasingin China and - to a lesser degree - in India and Brazil since2007

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ITMFs State of Trade Report


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Yarn Production

2007 - 2010

17.03.2011 Source: ITMF 33

Avr. Q1 Q4 2003 = 100 %


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In fabric production the situation is similar with China andIndia increasing production considerably since 2007

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ITMFs State of Trade Report

F b i P d i


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Fabric Production

2007 - 2010

17.03.2011 Source: ITMF 35

Avr. Q1 Q4 2003 = 100 %


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1) The main result is that production costs were risingacross the board in all countries and all segments

2) It is interesting to note that in all segments it is notChina but India that is having the lowest production costs

also due to lower raw material costs

3) In cotton spinning also other countries are competitivelike the USA, Korea and - to a lesser extent - Brazil

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ITMFs International Production CostComparison Study (1999-2010)

T t l Ri Y


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Total Ring Yarn

Spinning Costs (Ne 30)1999 - 2010USD per kg yarn

17.03.2011 Source: ITMF 37

T t l R t Y


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Total Rotor Yarn

Spinning Costs (Ne 20)1999 - 2010USD per kg yarn

17.03.2011 Source: ITMF 38

Total Textured


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Total Textured

Yarn Costs (75 den)1999 - 2010USD per kg yarn

17.03.2011 Source: ITMF 39

Total Costs


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Total Costs

Woven Ring Yarn Fabric1999 - 2010USD per meter of fabric

17.03.2011 Source: ITMF 40

Raw Material Costs (Cotton)


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Raw Material Costs (Cotton)

1999 - 2010USD per kg

17.03.2011 Source: ICAC, ITMF 41

R b hi d t i


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Reasonsbehindcurrentsurgeincottonprice

Lower

production

(due

to

bad

weather)

Increaseddemandtomeetincreaseconsumption

recordlowendingstocks

Increasedspeculativeinvestoractivityduetoexpansionarymonetarypoliciesandexcessmarketliquidity


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Impactof

current

cotton

scenario

on

worldtextiletrade

Highlevelofuncertaintyresultinginfluctuatingdemand

Inabilitytoforecastaccurately

Shiftstowardsalternativematerials

Millclosureacrosstheboardresultinginincreasedunemployment

Decliningtrendindemandoffinalmadeupproducts

P ki t iti i th t til


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Pakistanspositioninthetextileworld

4th Largestproducerofcotton

3rd largestconsumerofcotton

3rd largestimporterofcotton

Outcome:WhateverhappensinPakistanaffectstheworldandwhateverhappensintheworldaffectsPakistan.


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Pakistan

Cotton

Balance

Sheet2009/10 2010/11

(million metric tons) (million metric tons)

Opening Stock 0.579 0.473

Production 2.019 1.829

Import 0.336 0.370 *Total Supply 2.355 1.829

Mill Consumption 2.307 2.200

Export 0.154 0.029Total Demand 2.461 2.229

Closing Stock 0.473 0.443

Source: ICAC (Jan/Feb 2011)

* Only approx. 200000 tons have been imported so far. It is questionable whether theremaining amount can be imported.

Cotton Balance Sheet


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CottonBalanceSheet

Pakistanvs.otherCountries2010/2011 Pakistan China India Turkey Brazil

(million metric tons)

Opening Stock 0.473 2.937 1.445 0.363 0.680

Production 1.829 6.400 5.72 0.498 1.835

Import 0.370 * 3.200 0.091 0.700 0.150Total Supply 1.829 9.600 5.811 1.198 1.985

Mill Consumption 2.200 9.818 4.56 1.250 1.041

Export 0.029 0.005 1.011 0.010 0.526Total Demand 2.229 9.823 5.571 1.260 1.567

Closing Stock 0.443 2.714 1.685 0.291 1.098

Source: ICAC (Jan/Feb 2011)

* Only approx. 200000 tons have been imported so far. It is questionable whether theremaining amount can be imported.

Overview of Pakistans textile


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OverviewofPakistan stextileIndustry

Textileindustrycontributes55%toPakistanstotalexports

Textileindustryemploys40%ofPakistantotallabourforce


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Impactof

current

cotton

scenario

on

Pakistananditstextileindustry

Reducedspinningyieldandoutputduetodeterioratedfiberqualityresultingfrombadweatherandfloods. Output/spindle510%less.

Decreaseinyarn,clothandbedlinenexports(insertchart)

Squeezeinmillprofitability

f


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ImpactofcurrentcottonscenarioonPakistananditstextileindustry

Widespreadclosureofsmallandmediumscaleindustrydueto

unavailabilityofcotton

highfluctuationindemandaswellascottonprice

increasedworkingcapitalrequirementdueto

tripling

of

cotton

prices

Impact of current cotton scenario on


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Spinningandintegratedtextilecompaniesaremostlyinthepositionofpassingonhigher

rawmaterialcosts.

Downstreamtextilemills weavers,knitters,finishers,garmentmanufacturers areina

difficultpositionastheyarebeingsqueezedbetweenhigherinputcostsandlimitedsales

pricesatretaillevel.


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Acrosstheboardincreaseincostofproductionduetohighborrowingtofinance

workingcapitalatexorbitantlyhigherinterest

ratesascomparedtoregionalcompetitorslike

India,ChinaandBangladesh

Pakistan Export Breakup comparison


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PakistanExportBreakupcomparison

Products2010-2011

Jul-Jan

2009-2010

Jul-Jan

% age

Change

Qty (M Kg) 76.48 145.31 -47%

Value (M.$) 183.20 174.26 5%

Price / Kg 2.40 1.20 100%

Qty (M Kg) 331.87 440.20 -25%

Value (M.$) 1,206.05 911.90 32%Price / Kg 3.63 2.07 75%

Qty (M. Sq. Mtrs) 1,111.16 1,031.70 8%

Value (M.$) 1,331.63 1,008.62 32%

Price / Sq. Mtrs 1.20 0.98 23%

Qty (M. Kgs) 185.18 190.68 -3%

Value (M.$) 1,160.17 1,001.82 16%Price / Kg 6.27 5.25 19%

Qty (M.Kgs) 109.76 110.47 -1%

Value (M.$) 410.33 383.26 7%

Price / Kg 3.74 3.47 8%

Qty (M. Doz) 72.87 60.40 21%

Value (M.$) 1,296.26 1,035.78 25%Price / Doz 17.79 17.15 4%

Qty (M. Doz) 19.42 15.73 23%

Value (M.$) 952.17 715.82 33%

Price / Doz 49.04 45.50 8%

Other Textile Products Value (M.$) 972.22 759.34 28%

Ready Made Garments

Raw Cotton

Cotton Yarn

Cotton Cloth

Bed Wear

Towels

Hosiery & Knitwear

Source : APTMA (All Pakistan Textile Mills Association)

Pakistan Export Breakup comparison


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PakistanExportBreakupcomparisonProducts Jan-11 Jan-10 % age

ChangeQty (M Kg) 5.84 21.05 -72%Value (M.$) 17.06 28.41 -40%Price / Kg 2.92 1.35 117%Qty (M Kg) 51.37 70.83 -27%

Value (M.$) 218.02 137.55 58%Price / Kg 4.24 1.94 119%Qty (M. Sq. Mtrs) 152.89 180.29 -15%Value (M.$) 207.00 167.19 24%Price / Sq.Mtrs 1.35 0.93 46%Qty (M. Kgs) 25.77 29.85 -14%

Value (M.$) 167.99 153.99 9%Price / Kg 6.52 5.16 26%Qty (M.Kgs) 18.04 17.76 2%Value (M.$) 63.96 63.02 1%Price / Kg 3.54 3.55 0%Qty (M. Doz) 10.59 8.83 20%Value (M.$) 189.75 145.90 30%Price / Doz 17.92 16.53 8%Qty (M. Doz) 3.19 2.73 17%Value (M.$) 159.98 120.64 33%Price / Doz 50.18 44.21 14%

Other Textile Products Value (M.$) 171.15 113.63 51%

Ready Made Garments

Yarn

Raw Cotton

Cotton Cloth

Bed Wear

Towels

Hosiery & Knitwear

Source : APTMA (All Pakistan Textile Mills Association)


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Conclusion


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Industryneedstoworkonpartnershipbasis,allowingreasonableprofitmarginsto

manufacturers,enablingthemtosurvive.


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Thankyouforyourattention!www.itmf.org

dubai bashir ali mohammad

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